Jeff Korson's Economy

Jeff Korson's latest epic is in the Tifton Gazette.

Jeff says that the Federal Government is making money worthless by printing money and driving inflation up. Also you should keep your money in coins, because the metal will soon be worth more than the face value.

Lets analyse his article.
The concept of "fractional banking" which is trading on the expectation that most of the time people won't need their deposited money. The bank is trading with money it doesn't have. This works as long as people don't take their money out at the same time. A run on the bank will cause it to collapse. The debt/limit was mostly 12 to 1.

Who thought that fractional banking was a good idea? The banks thought so. In fact an exemption given by the SEC to a few firms during Bush administration allowed leveraging up to 30 or 40 to 1.

Jeff thinks that this is a bad idea and for once I'm in complete agreement with him. When everybody leverages their money by 12 times the risk is multiplied. Inevitably several of these companies collapsed in a domino effect.

Jeff would have the whole system collapse and everybody would lose all their money. That is except of course those prudent people who buried hoards of gold and silver. What actually happened is that the government had to step in to save what was left and took on massive debts. The Government ensured that people don't need hoards of gold any more as they can guarantee against bank failure. Jeff would rather not spend tax dollars on saving banks and rely instead on his hoard of nickel rolls.

So why is the Federal Reserve printing money like it is going out of fashion? This is because of the spectre of deflation. Inflation is very low at the moment so it shouldn't be worrying the Tea Party. But when inflation goes negative prices start to go down.
Sounds like a great thing?

What is wrong with deflation? As prices go down people will put off buying things because they know the price will come down soon. As people stop buying things the price goes down faster. Soon the economy comes to a standstill. As they found out in the Great Depression. Didn't think of that, did you Jeff? Quantitive easing devalues our money, but it is better than having our money worth nothing at all.